New Author Earning Report Doesn’t Explain the AAP’s Drop in eBook Revenues in January

The latest Author Earnings Report is out today, like the earlier reports it is going to instigate more arguments than it will settle.

The May 2015 report is based on a survey and analysis of the top 200,000 titles on the Kindle Store best-seller lists, and among the other details it revealed was an unsurprising trend in the price of ebooks, a continuing shift as indie titles replaced traditionally published titles, and a corresponding shift in revenues.

It does not, however, answer my questions about AAP's Statshot report from January of declining ebook sales; it raises more questions. And to be clear, I know I have reached a different conclusion from the official Author Earnings Report, and I will explain why later in the post.

But before we get to that, let's start with ebook pricing trends (and save the more intricate details for later in the post).

As you can see in the charts below, the average prices for Amazon-published ebooks remained relatively constant, while the prices of indie-published ebooks and those from small and medium presses spiked in late 2014 and early 2015 before trending downward again.

The average price of best-seller ebooks published by the Big 5, on the other hand, has continued to increase over the past 6 quarters. Given that four of the Big Five have switched to agency ebook contracts in the past 8 months, it comes as no surprise that they are also raising their ebook prices in general. But more importantly, I would like you to note the patterns of the four charts.

In particular, I want you to note how the indie ebook prices and the small/medium publisher ebook prices follow the same pattern. This suggests that both parties are responding to changes in the market in a similar manner, while the Big Five are not.

The Big Five are simply increasing their prices no matter what. This point is worth watching because it will affect the relative shifts in revenue from one quarter to the next.

In fact, we may already be seeing the impact when we compare the charts from January 2015 and May 2015.

As you can see in the following charts, indies are taking an increasing number of spots on the best-seller list, leading to an increasing number of sales and revenue.

Skipping to the gross sales charts, we can see a huge shift in the revenue split; indies are getting more money, while small/medium/big publishers are getting less.

Have a look:

Before we go further, let me add that I know the dates are different, and I know the sample sizes are different. Those differences weaken this comparison, but they do not completely invalidate it.

If we threw out the above comparison, we would have to throw out the following one as well.

Remember when I reported on the AAP's January 2015 Statshot report and I predicted that the decline in ebook revenues could point to a shift in purchases to another industry segment (or format)?

Well, we can't actually back that up with the Author Earning Reports from February 2014 and January 2015. When we compare those two charts, we don't see a huge difference in the gross ebook revenue shares of the small/medium/big publishers.

The first chart is not labeled, but it is from February 2014:

When you factor in the "single-author publisher" revenues (those are indies by another name), self-published authors aren't really picking up much more of a share of the revenues in the Kindle Store in early 2015 than they were in early 2014 (21% vs 22%), while publishers only lost a couple percentage points (73% to 71%).

That two point drop does not reflect the 8% drop in publisher revenues which the AAP reported for January; it's not even close.

And yes, I know that the AE Report itself says that there is a huge difference; they are wrong. They only discuss it in terms of the stats for the Big Five, and not the combined stats of the small/medium/big publishers. The AAP collects revenue data from 1,200 publishers so that is a clearly a mistake on the part of the pseudonymous Data Guy.

Sidenote: The discrepancy is doubly interesting given that the average ebook prices of small/medium/big publishers were higher in January 2015 than they were in February 2014 (scroll up for the relevant chart). The higher prices didn't affect the revenue share to a significant degree. Chew on that.

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Does anyone else wonder why the two annual comparisons point to different conclusions?

This could be a sign of market fluctuations rather than actual change, or it could be a sign that the shift only really picked up steam after January 2015. Either way, we're going to have to wait for another quarterly report before we know for sure.

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Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

The problem with pointing to B&N as a cause is that the Kindle Store is global; the Nook Store considerably less so. The actual dollar value impact of the Nook Store’s decline is in fact smaller than if we were just talking about the US ebook market.

BPH unit sales dropped 10% over the first twelve months of the series and then lost 18% in the last quarter. More than a year’s drop in one quarter is too big for market fluctuations: more likely, a threshold was crossed.

The problem with charting the average BPH price is that not all the BPHs are on agency redux: the randy penguin is still on the older contract and they account for about half the BPH sales so their prices can mask the full increase of the small four BPHs.

Also, BPH price hikes and sales losses haven’t been uniform, across the board. Rather, the biggest drop has been at the high end, sales-wise; new releases. Thus the big decline in top sellers.

I’m willing to bet that if the randy penguin sales are charted separately, small-four average prices will show a big spike and the penguin house prices will show a smaller increase. More, if the backlist titles are plotted separately, the new release prices will show a really big spike that will explain the big drop in representation atop the sales rankings.

That chart isn’t as useful as you’d think. The dates are wrong, for one thing.But more importantly, it is misleading. That chart places the same value on a title at the top of the best-seller list as at the bottom, the same value on a $3 best-seller as a $9 title.

We also don’t know the impact of the 75+ million iphone 6 sales. The Big 5 decreases at Amazon could have been picked up by Apple/iBooks. Currently, 9 of the top 10 iBook bestsellers are from the Big 5.

That assumes people already buying from Amazon would start buying from Apple despite the Kindle app being on iOS. If that were true, Apple would be filing the ebook wofld since 2010. Instead, iBooks got little traction until Apple forced the removal of all references to ebookstores from reading apps. Also, Amazon wouldn’t have grown their market share from 54% in mid 2010 to the 60%-plus range of last report (Hachette).

A more likely answer is that Apple, like Nook, heavily promotes BPH titles and relies more on casual reader once-a-year buys of bestsellers and big name authors. Amazon, Kobo, and Nook, in contrast, get a lot of their sales from heavy readers, a point B&N emphasized when they announced they were not going to do new Nook tablets but would be doing new eink readers.

Heavy readers can and do read on both dedicated devices and multifunction devices but casual readers are much more likely to be multifunction only. That skews the charts at Apple and Google towards NYT Bestsellers.

There are fewer indie titles in iBooks, over a million possibly two million less. The BPH have less competition on iBooks. And with Agency and all retailers prices the same there is no need to shop around for much of the Big 5 titles.

If Amazon’s market share is still around 65% and B&N and Kobo negligible that leaves Apple and Google with the other 30%. And as you mention BPH are heavily marketed and purchased from Apple and Google, so what the BPH lose from Amazon they may gain from these other retailers. With 75 million phablets even casual reader’s sales add up and should be considered if looking at the whole industry. I know AE is mostly Amazon focused but they aren’t everything.

In the Author Earnings report Uncategorised Single Author Publisher is not a synonym for indie author, although it is a synonym for indie press. A large proportion of the books in the dataset listed as indie (i.e., author, not press) are Single Author Publishers that the Author Earnings Data Guy knows about. So Uncategorised Single Author Publisher is in theory made up primarily of indie presses that only happened to have one book in the Top 100s (which is what the spider reads) on the day that Charlotte spun her web.

Indie presses are likely to follow the practice of major presses in sticking to top level categories and not burrowing down into obscure subcategories like Alternative Worlds (even when the book is about alternative worlds). Consequently Author Earnings overstates self-publishers and will leave more small presses with just one book and therefore in the Uncategorised Single Author Publisher data segment.